vendor sells fruit near to a newly built shopping center in downtown
on February 1.
's retail market is expected to grow at a slower pace this year.
The retail market would grow at a slower pace than it did last year as high inflation in the domestic market and the global recession continue to bite deep, industry insiders say.
Phan The Rue, chairman of the Vietnam Retailers Association, said the retail market would experience more difficulties as the global economic recession has not yet showed signs of easing. "It would see no big growth in 2012."
Vietnam's retail market is strongly affected by changes in the world market, Rue said. The prices of many imported goods are seeing sudden fluctuations, which may hurt the domestic market if incomes of local consumers do not increase, Rue said.
The Ministry of Trade and Industry estimates that total retail sales will rise by 20 percent this year, compared to 24.2 percent last year.
Nguyen Thai Dung, deputy general director of the Big C supermarket chain in Vietnam, said high inflation, which still stands at around 20 percent, has decreased domestic purchasing power, hurting growth of the retail sales.
Consumption growth, in real terms, was only 4 percent in 2011, compared to 14 percent the previous year, he said.
Vu Vinh Phu, chairman of the Hanoi Supermarkets Association, said it was difficult for the market to do well amidst increasing unemployment and bankruptcy among local firms.
Due to thinner real incomes, local consumers will use 70 percent of their spending on food items, he said.
According to a survey conducted among 600 consumers by market research firm FTA late last year, 94 percent of the respondents said the inflation hike will affect their consumption habits in 2012. They said they would cut purchases at supermarkets and convenience stores, and move to traditional markets, which often offer goods with lower prices. They would also wait for discount sales, the survey said.
Despite the looming slowdown this year, Vietnam's retail market still holds big potential, experts say.
Since the country opened its market to 100-percent foreign retailers in early 2009, the entry of players like Metro Cash & Carry, Lotte Mart and Big C has seen modern retail formats grow more prominent in the country. Some foreign retailers are also expanding their distribution networks to Vietnam's rural regions where traditional retail channels still dominate the market.
The country currently has some 600 supermarkets, over 100 shopping centers, 2,000 convenience stores and 8,590 traditional markets. Only 15-20 percent of goods are purchased through modern distribution systems, while the remainders are distributed through traditional markets.
Two more major international retailers, including Japan's Aeon and Malaysia's Giant, entered the local market in 2011, and global giants like Tesco from the UK and US-based Walmart are expected to follow.
"Foreign investors will be more interested in the market after the global economic recession ends," said Dinh Thi My Loan, general secretary of the Vietnam Retailers Association.
The market could see annual average growth of 23-25 percent between 2011 and 2015, according to the association.
Pham Tat Thang, a senior researcher of the Trade Research Institute of the Ministry of Industry and Trade, said Vietnam will become an attractive destination to foreign retailers when investment barriers are removed.
Rue said there are "too many stages" in the retail system now, increasing transportation costs and creating openings for fake and low-quality goods to infiltrate outlets.
Vietnam's retail market fell to 23rd place in the 2011 Global Retail Development Index by global management consultant A.T. Kearney. It went down from the top position in the 2008 to the 6th place in 2009 and the 14th position last year.
Although consumer confidence is high in Vietnam, poor distribution infrastructure and expensive retail space remain barriers to entry for foreign retailers, A.T. Kearney says in the report.
But the company said Vietnam's retail market is still attractive, with an expected market size of US$113 billion by 2012 and a growing population of 88.9 million.
Some industry insiders said Vietnamese consumers' shopping habits are changing, with more spending on modern retail outlets due to convenience and health-related issues. Many consumers say modern outlets gave them easy access to new products in clean surroundings, generating more confidence in food safety.
The big foreign retailers have tasted success in the Vietnamese market. The turnover of a foreign retailer in the market is several dozen times higher than a medium-sized domestic firm, Rue said. They have expanded their distribution networks in Vietnam, with both Big C and Metro late last year opening their 16th outlet in the country.
In the retail market, local firms are becoming less competitive than foreign ones due to limited capital and experience in the distribution sector, industry insiders say.
According to the Vietnam Retailers Association, most local enterprises in the distribution sector have small capital. Some 55 percent of local retailers have a capital of less than VND100 million ($4,761).
Furthermore, Vietnamese goods have still not been able to strongly penetrate both supermarkets and traditional markets. Thang of the Trade Research Institute said spending and consumption habits of Vietnamese people have changed a lot over the past few years, while goods production and trade have not developed correspondingly, facilitating the dominance of foreign products.
Deputy Minister of Industry and Trade Ho Thi Kim Thoa has advised Vietnamese firms should improve their distribution system, and asked retailers and producers to strengthen cooperation toward meeting domestic consumers' tastes and demands.